How do personal pension contributions affect what Universal Credit I receive? STEVE WEBB replies

I'm on Universal Credit and make contributions into a personal pension in addition to my workplace pension.

Unfortunately, I've had trouble persuading Universal Credit to deduct my personal pension contributions from my income.

Could you confirm that my pension contributions are deductible?

And do you know if they deduct just the amount I pay in, or do they deduct the full amount that goes into my pension which includes the tax relief from HMRC?

Steve Webb replies: The good news is that for people on Universal Credit, the money that you pay into any pension is deductible from your income before your UC is calculated.

By paying into a pension, your disposable income is lowered and this means you get extra UC compared with someone who isn't contributing to a pension.

This makes saving into a pension even more attractive for people on benefit than it is for many other groups.

As you have found, whilst the Department for Work and Pensions handles all of this automatically when it comes to contributions made through your pay packet, many people have reported problems getting them to accept that personal pension contributions which you make directly are also deductible.

We have covered examples of this problem previously on This is Money: Pension blunder at DWP discovered by Steve Webb means thousands could be underpaid Universal Credit

The rules are however quite clear.

According to the Universal Credit Regulations 2013, the DWP should deduct any pension contribution you make and not just those made through a workplace pension.

The exact wording (from Section 55 of the regulations) is:

'(5) In calculating the amount of a person's employed earnings in respect of an assessment period, there are to be deducted from the amount of general earnings or benefits specified in paragraphs (2) to (4)—

(a) any relievable pension contributions made by the person in that period'

You will see that it says *any* pension contributions and not just those made through a workplace pension.

For people who are self-employed, and who declare their income to DWP through the standard UC forms for the self-employed, they should be prompted to provide information about their pension contributions alongside information about their profits from self-employment.

These contributions should automatically be deducted from their profits before UC is calculated.

But in your case, DWP will not know about the personal contributions that you have made and so you have to notify them each time you make a contribution so that this can be taken into account when your UC is worked out.

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One other question which arises is exactly what figure they should use.

As you probably know, when you pay directly into a personal pension this is topped up by HMRC.

For example, if you pay in £80, HMRC will add £20 giving a 'gross' contribution of £100. The £20 is pension tax relief awarded at the basic rate.

Those who are higher rate taxpayers can fill in a tax return and claim back additional tax relief.

In the old system of working tax credits, which was based around people's gross income, it would have been the full £100 'gross' pension contribution which was deducted.

However, under Universal Credit a recent benefit tribunal case in which I was involved has confirmed that for UC purposes it is the 'net' figure which should be deducted.

In the example where you pay £80 which is topped up to £100 by HMRC, it is the actual amount that you paid in – the £80 – which is the correct figure to be used in the calculation.